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Traders: When to be Flexible & when to be Rigid

  1. raders should have a very flexible mindset about which way a trade can go when they enter it, but be very rigid about taking their stop loss when it is hit.
  2. Traders should be very flexible on profit expectations during each market cycle but very rigid about following their robust method during each cycle.
  3. Traders must be very flexible about allowing a winner to run but very rigid on cutting losses short.
  4. Traders must be flexible about their opinions and change them when proven wrong but they must be rigid about their risk management and never risk more than planned.
  5. Traders should be flexible about their watch list but rigid about their trading plan.
  6. Traders should be flexible about what will happen next in the market but rigid about their rules.
  7. Traders should be flexible about the direction of the trend when it changes but rigid about positions sizing.
  8. Traders should be flexible about profit targets but rigid about entering with a minimum risk/reward plan.
  9. Trades should be flexible about entries and exits as the market action develops but rigid about managing the risk of ruin at all times.
  10. Traders should be flexible about expectations on when they will have a huge winning streak that will change their financial lives but rigidly pursue success in the markets until it does happen.

10 Secrets of Trading

A ROBUST METHOD: Much like a casino you must have an edge in your trading. Your system must be a robust one with the odds on your side either through many more wins than losses with equal capital at risk or small losses and big wins over a long period of time.

CONFIDENCE: You must have the confidence in your method that it is a winner in the long term through proper research or back testing. You also must have confidence in yourself to execute the plan.

DISCIPLINE: A trader must have the discipline to take their predetermined entries and exits. The trader is the weakest link in trading no method works with out the discipline to execute it in a live market.

TRADING PLAN: A trader has to have a plan on what they will trade, how much they will trade, the time frame they are trading on and rules that they will follow for entries and exits.

EMOTIONAL CONTROL: The winning trader must have the ability to not make decisions based on emotions. Winning traders still feel emotions but have the ability to stay on their trading plan instead of making decisions based on fear or greed in the heat of market action.

RISK/REWARD: The best trades to take have the potential to win $3 for each $1  risked. With this ratio a trader can lose on two trades our of three and still make money. This is a defined edge and keeps the trader looking for only the best instruments to trade and taking the best entry points as part of their system.

EGO CONTROL: The destruction of many traders is when they believe they do not need risk management or rules and that they are smarter than the market and begin taking trades based purely on their opinions instead of principles, price action, and chart action. Good traders are humble traders.

RISK OF RUIN: The best traders understand the best way to ensure their survival in trading is with only putting 1% of their total trading capital at risk in any one trade either through great entries with tight stop losses or trading smaller position sizes. Nothing will determine a trader’s success more than their ability to survive a string of 10-15 losses in a row.

MASTER YOUR OWN METHOD: Trader know thyself, know who you are, the trading method that fits your personality and risk tolerance and become a master of that method. Do not wander around when it gets tough, be faithful to your edge. Be the best that you can be at what you are whether you are a day trader, trend follower, option trader, momentum trader, chart reader, technical analyst, or fundamentalist. I know of traders that got reach with any of these methods but do not know any that got rich trading multiple methods.  Pick one, master one.

PERSEVERANCE: Even with all the elements in place there will be rough months and even rough years for almost all traders. Sometimes right at the beginning of a new traders first plunge into the market the price action can act completely contrary to profits for that traders method. All the traders that ended up rich have one thing in common, they did not quit trading until they became rich.


Weakest Part of Trading

The weakest part of any trading method is the trader themselves. There are many, many, robust trading systems and methods that do make money in the long term. The problem is the trader having the discipline and mental toughness to trade one of them consistently. The vast majority of time it is not a system failure but traders that fail in this game through one of seven common errors. If you can understand these error and overcome them you could make a lot of money in the right market conditions.

  1. The trader must have the discipline to take the system’s entries and exits.
  2. The trader must have the discipline to take the stop loss on a losing trade when it is hit and not keep holding and start hoping.
  3. No matter the method the trader has to manage risk through proper position sizing, getting greedy and trading too big will blow up even the best systems.
  4. It is the trader that must have the perseverance to stick to the method even during losing periods, and also stick with trading until success is reached.
  5. If a trader can not manage their mind then the stress will break them, I have seen this happen many times. If you can’t handle losing you can’t trade.
  6. The trader must find a robust method, must understand why it has an edge, and must believe in their methodology.
  7. The trader has to know themselves and trade the method that fits their risk tolerance levels and own psychology.

The good news is that if none of these error fit you when you lose money in a trade then the market was just not conducive to your methodology, and it is not your fault so don’t dwell on it.

5 Trading Mistakes & Destroy Yourself

  1. 5-rulesInstead of cutting a loss the trader holds it stressing over it for the rest of the day or a week. This destroys the trader’s mental capital and inflicts completely unnecessary emotional pain. The first loss it the best loss.

  2. A trader that trades their opinion instead of the price action has a lower success rate than someone who just trades price action. The vast majority of traders make money by following trends and chart patterns not their own opinion.
  3. A trader who puts on the one big trade that they think they just can’t lose on is usually the one that blows up their account. A trader must always have stops and must always manage risk regardless of their belief in any one trade.
  4. Believing that you are right about a trade and the market is wrong is a sure path to destruction. The market is always right because price is reality. How do we know when we are wrong? We lose money that is proof enough.
  5. A trader who endlessly searches for stock picks and predictions instead of  learning how to trade a robust method while managing their own mind and using risk management is doomed to failure.

     

A Traders number 1 JOB is…..

A trader’s number one job is NOT:

  1. Stock Picking
  2. Chart Reading
  3. Trend Following
  4. Entries
  5. Exits
  6. Understanding the market environment
  7. Managing Emotions
  8. Managing Ego
  9. A Robust Method
  10. Or even Discipline

A traders #1 job is to be a great risk manager. (more…)

7 Weakest Points of Trading

The weakest part of any trading method is the trader themselves. There are many, many, robust trading systems and methods that do make money in the long term. The problem is the trader having the discipline and mental toughness to trade one of them consistently. The vast majority of time it is not a system failure but traders that fail in this game through one of seven common errors. If you can understand these error and overcome them you could make a lot of money in the right market conditions.

  1. The trader must have the discipline to take the system’s entries and exits.
  2. The trader must have the discipline to take the stop loss on a losing trade when it is hit and not keep holding and start hoping.
  3. No matter the method the trader has to manage risk through proper position sizing, getting greedy and trading too big will blow up even the best systems.
  4. It is the trader that must have the perseverance to stick to the method even during losing periods, and also stick with trading until success is reached.
  5. If a trader can not manage their mind then the stress will break them, I have seen this happen many times. If you can’t handle losing you can’t trade.
  6. The trader must find a robust method, must understand why it has an edge, and must believe in their methodology.
  7. The trader has to know themselves and trade the method that fits their risk tolerance levels and own psychology. (more…)

10 Things A Trader Needs to START DOING …To Mint Money

There are many trading principles that are common among  successful rich traders. It is important to learn the things that allow them to win so we can follow in their footsteps and make money. There are 10 things that new traders can start doing tomorrow to improve their results immediately. If you have been trading for awhile but have not been profitable these  may be things that you need to start doing to stop losing money.

 1. Start trading the price action by using charts. The market doesn’t care about your opinions but the chart expresses the collective actions of all market participants. Learn to understand what the chart is saying.

Start to understand that the market determines whether any single trade wins or loses not you and not an imaginary “they”.

2. We can only surf the price waves not control them. 

Start to take 100% responsibility for your losses.

3. You enter the trade, you exit the trade, the wins and losses are yours alone. The blame game is a losing game in the markets.

Start to bounce back from losing trades quickly, move on don’t ruminate.

4. If your position size and risk management are correct no one losing trade should emotionally devastate you it should be only one of the next hundred trades with little significance by itself.

Start caring more about what the market is doing and less about what you think it should be doing.

5. ALL that really matters is current price action not your opinion of what might be price action later.  (more…)